The Business Case for Virtual Business, Part 1

It wasn't long after the launch of Linden Lab's Second Life back in 2003 that companies and organizations around the globe began to sit up and take notice. The prospect of millions of potential customers -- all flocking to the same destination and congregating there -- is enough to whet the appetite of even the most conservative and change-averse organization, after all.

Within a few short years, businesses including IBM (NYSE: IBM), Sun Microsystems (Nasdaq: JAVA), AOL, Coca-Cola (NYSE: KO), Wells Fargo (NYSE: WFC), Nissan and Starwood Hotels had set up a presence in the virtual world, generating much media attention and fanfare.

"It seemed like a lot of people were turning this way -- playing 'World of Warcraft' or signing up for Second Life, for example -- so for many marketers, that was an aha moment," Forrester Research analyst TJ Keitt told LinuxInsider.

Virtual worlds looked as though they might be a new marketing channel, in other words, with the potential to reach many, many people.

'Residents Weren't Interested'

Equally well-publicized, however, were some notable departures that occurred in short order, as companies moved their virtual shops elsewhere or closed them up altogether. AOL, for instance, shut down its AOL Pointe effort in Second Life in late 2007, just 10 months after it began; Coca-Cola moved its Coke Studios to a branded space called "CC Metro" on There.com; and Wells Fargo packed up and moved its Stagecoach Island to Second Life competitor Active Worlds.

"As a lot of vendors discovered at the height of corporate interest in Second Life around 2006, the residents weren't interested in buying things in virtual worlds -- it's first and foremost a social networking application," Keitt explained. "So, shortly after companies established islands in Second Life, they found that they were going largely unvisited."

Indeed, "if the goal was making cash -- real dollars -- that, in many cases, was not realized," said Paul Messinger, a University of Alberta business professor who studies virtual worlds.

"What was realized was low-cost publicity to mainstream media that were covering Second Life, and low-cost publicity to in-world consumers," he told LinuxInsider.

'There Wasn't a Playbook'

Companies trying to market or advertise on virtual worlds like Second Life "ran into the same kinds of problems people find when trying to market or advertise through any other social network," Forrester's Keitt added. "Some members may want to become fans of your product on Facebook, for example, but it's probably a very small subset."

Also, because the technology was still relatively new, "I think a lot of companies leaped before they looked," he said. "There wasn't really a business plan as to what they were actually looking to accomplish, or how they were going to design a virtual presence to achieve those goals."

Of course, "in fairness, there wasn't a playbook," he conceded.

Survey: Increasing Benefits

The corporate world may still be waiting for that playbook, but today there are, nevertheless, "hundreds" of companies and organizations using Second Life, Chris Collins, general manager for enterprise with Linden Lab, told LinuxInsider -- and that's saying nothing about all the many other virtual worlds that have emerged.

Many lessons have been learned since the environment's early days, and there are numerous new opportunities for companies savvy enough to learn from those that came before them.

To wit: More than 40 percent of respondents to a recent ThinkBalm survey said they had found a positive total economic benefit from investments in immersive technologies in 2008 and the first quarter of 2009; more than 50 percent expect such positive benefits this year.

Perhaps even more telling is that the number of respondents who expect to obtain economic benefit of US$25,000 or more in 2009 is more than double the number who indicated they achieved that level for 2008 and the first quarter of 2009.

Engaging Target Consumers

Wells Fargo was one of the early players in this arena, having set up its Stagecoach Island on Second Life back in 2005.

The goal of the program was to provide "fun and financial education for teens and young adults," explained Casey Acker, assistant vice president of experiential marketing for the bank.

"We were looking for innovative and engaging ways to reach a young adult audience," Acker told LinuxInsider. "Creating Stagecoach Island allowed us to deliver a fun environment where young people can hang out with friends, go shopping and take part in activities."

Content Concerns

Islanders also learn "important lessons about smart money management," Acker noted. For example: "They can earn 'shells' -- the island currency -- by getting a job or by answering financial trivia questions, and can spend that money or save for their lives on the island."

Wells Fargo's motivation in moving out of Second Life and onto Active Worlds was primarily the fact that it was targeting a younger group of consumers, she explained: "Second Life does cater to an older and more 'adult' demographic, and some of the content just wasn't appropriate for our teen and young adult audiences."

In fact, concern over adult content has since been addressed by Linden Lab, at least in part, when it created Teen Second Life for those aged 13 to 17 -- and, just recently, moved adult-oriented content to a separate "continent" in the world.

Although Acker declined to provide user numbers, Stagecoach Island is alive and well in Active Worlds, she said, with new users signing up every day.

Branding Effects

There have been challenges, to be sure. "People don't expect Wells Fargo to have a virtual world," for example, "so they don't come to us looking for this type of experience," Acker noted.

However, the benefits have been real. "An educated consumer is our best customer," Acker explained. "By providing financial education in a fun, engaging way, we are helping our customer succeed financially."

Stagecoach Island has also helped the bank contemporize its brand for young people, Acker added. "It was one of our first efforts in the social media space and set the stage for other efforts, such as our blogs and presence on MySpace, Facebook and Twitter."

Indeed, the ability to reach particular segments of consumers by targeting specific virtual worlds is a compelling one, says University of Alberta's Messinger, who is also lead author on a new paper on the topic.

Children, for example, can be found on worlds like Habbo and Webkinz, while different audiences tend to populate other contenders such as "World of Warcraft" and Second Life.

What's equally compelling, Messinger told LinuxInsider, is that such audiences tend to be international, spanning countries within a particular -- generally tech-savvy -- segment.

'Pretty Good Carryovers'

Even more exciting for marketers are the results of a study Messinger conducted indicating that brand impressions formed in a virtual world tend to show "some pretty good carryovers" into recall and perception of the real-life brand.

"I'm not suggesting consumers drive a Nissan car in a virtual world and then go out and buy a real one," he explained, "but our research suggests they might be more inclined to visit a real Nissan dealership."

At that point, of course, "all bets are off -- then it depends on real experiences" to create a purchase, he noted.

For businesses considering undertaking virtual-world efforts of their own, Acker offers the following advice: "Always keep the user in mind. If a world is not useful, fun or interesting for users, they won't come back multiple times. Virtual worlds are communities, and creators must be proactive about keeping their communities engaged."

The Business Case for Virtual Business, Part 2.